Interior chief in Houston, rethinks royalty rates

DRILLINGInterior chief rethinks royalty rates

TOM FOWLER, Copyright 2009 Houston Chronicle

Published
5:30 am CDT, Wednesday, October 28, 2009

Oil and gas companies that take bigger risks and explore in especially challenging areas might see lower federal royalty payments, Interior Secretary Ken Salazar says, but the Gulf of Mexico isn't one of those areas.

In a meeting Wednesday with the Houston Chronicle editorial board, Salazar said the royalty rate companies pay for oil and natural gas from onshore fields has been the same for nearly 30 years.

“It's the same royalty rate regardless of whether you have drilled and are taking oil and gas from a known play or whether you're in a play where you're a wildcatter and put up with a lot of risk for a discovery,” Salazar said. “I think if companies are taking a bigger risk, there ought to be ways of incentivizing that.”

But Salazar said he doesn't believe Gulf of Mexico projects would meet that high-risk threshold.

A visit to Murphy Oil's Medusa platform about 100 miles south of Louisiana earlier this year convinced him that “the technology and industry practices have proceeded to a point of maturity where we see in the Gulf there's no need for deep-water royalty relief. The deep-water plays are actually very productive and very profitable.”

Salazar was in town to meet with wind industry officials and formally announce a $200 million grant in federal stimulus funds to CenterPoint Energy.

The grant will be used to speed up the installation of smart meters that can help customers and the power company keep more detailed track of electricity use and to begin work adding new technology that will make the power distribution system more resilient after outages.

Streamlining process

While the grants are administered by the Department of Energy, Salazar said his agency is working to streamline permitting of high- voltage transmission projects crossing federal lands that will help modernize the country's power grid.

The Interior Department also is working with developers of renewable power pro-jects — namely, wind and solar power — to place them on federal lands, he said.

Salazar is continuing to review the plan for new drilling on the outer continental shelf developed by former Interior Secretary Gail Norton in 2007. An appeals court ruled earlier this year that the plan didn't properly consider environmental impacts of new offshore lease sales.

“This plan was, in my opinion, essentially thrown out there without a lot of thought given to it. What I want to do is look at the entire OCS and make a determination where it is appropriate to continue exploration and production,” Salazar said.

Decision likely soon

He expects to have a decision within a month on how those plans will move forward.

“The president has been clear that he wants us to have a production piece so we continue to do production of oil and gas,” Salazar said.

Salazar said he will make his decision on the plan according to the Outer Continental Shelf laws that give him broad discretion but also require him to take into account the policies of the states.

Virginia's requirements

The state of Virginia, for example, says it wants to have oil and gas exploration offshore but with certain caveats, Salazar said, such as a minimum distance from shore of 50 miles.

Virginia's governor has also said he doesn't want to move ahead until there's more up-to-date data on the region's potential, because offshore seismic data is many decades old.